Tuesday, May 11, 2021

ILO projects wage growth for Botswana

Botswana workers would be pleased to know that, according to the International Labour Organisation, the country is among 107 whose wages are projected to grow between now and 2019. Botswana is clustered with Lesotho, Namibia, South Africa and Swaziland.
Such clustering is based on geographic proximity and economic/institutional similarities; income levels; and level of export dependence. The reasoning is that similar economic/institutional characteristics are likely to be similarly affected by a crisis and have similar mechanisms to attenuate the crisis impact on their labour markets. Furthermore, because countries within geographic areas often have strong World Trade Organisation (WTO) and financial linkages, the crisis is likely to spill over from one economy to its neighbour.
Countries of similar income levels are also likely to have more similar labour market institutions (like social protection measures) and similar capacities to implement fiscal stimulus and other policies to counter the crisis impact. Finally, as the decline in exports was the primary crisis transmission channel from developed to developing economies, countries were grouped according to their level of exposure to this channel, as measured by their exports as a percentage of GDP. The impact of the crisis on labour markets through the export channel also depends on the type of exports (the affected sectors of the economy), the share of domestic value added in exports and the relative importance of domestic consumption.
ILO’s estimates are constructed on the basis of a large set of econometric models that exploit the relationship between wages and different macroeconomic and labour market variables. The underlying wage data are taken from the ILO’s Global Wage Database for 1999ÔÇô2013 and from the ILO Key Indicators of the Labour Market for 1995ÔÇô1998. Data for explanatory variables come from the IMF World Economic Outlook, October 2014 and ILO Trends Econometric Models, October 2014.
These models make use of panel estimation techniques and differ with respect to various dimensions: the estimation methodology; the form in which wages enter the models as dependent variable (as real wage growth, difference between real wage and productivity growth, or logarithm of the real wage); the set of explanatory variables; the way in which different countries are grouped together. The models consider a wide range of explanatory variables such as investment, labour productivity, proxies for the reservation wage, sectoral and occupational employment shares and demographic variables, allowing for a variety of factors that are (potentially) related to real wage trends. In addition, some specifications account for the fact that the relationship of wages with these variables can change, depending on the position within the business cycle. Regressions are run on the whole panel dataset as well as on different groups of countries. Country groupings are based on differences in minimum wage legislation, minimum-wage setting mechanisms, geographic proximity and the distribution of unemployment over different durations and changes thereof.

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